ESG in Conversation
 

ESG in Conversation

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Join us for a digest of the latest research, analysis and insights on the relationships between environmental social and corporate governance issues and global business, finance and society. In each episode, hear from experts sharing their insights on how institutional investors can identify and mitigate risks related to ESG factors, but also leverage opportunities in sustainable investment and debt capital markets. This is ESG in Conversation.

Episodes

What’s Happening in Sustainable Finance: The Nuance of ESG Ratings, the Impact of Climate Change on Sport, and “Code Red” for Humanity

Wednesday Oct 13, 2021

Wednesday Oct 13, 2021

Episode Summary

Hosts

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Marika Stocker, Senior Manager, Corporate Solutions

In this episode, Nick and Marika discuss recent developments in sustainable finance that have caught their eye. The diverse topics covered range from the growing momentum behind sustainability-linked bonds to the Tokyo Olympics’ focus on sustainability to the latest report from IPCC. They also note the continued growth of sustainable finance globally due to more issuers, markets, products, and diversification.

Climate Change Considerations for Global Sporting Events

With the summer Olympics behind us and the winter games only a few months away, Nick and Marika discuss the climate frameworks being developed by the International Olympic Committee and other global sporting organizations. These groups are considering the future impact of climate change on global sporting events and vice versa. The frameworks will address issues such as scope 3 emissions due to travel and transport and the effects of changing weather patterns on the locations for future events and athletes’ safety. 

The Nuanced and Multidimensional Nature of ESG Ratings

In response to a recent article criticizing the use of ESG scores in credit analysis, Nick touches on the nuances of ESG ratings and how they are used. He cites the multidimensional nature of ESG ratings, noting that some of Sustainalytics’ clients don’t use the top-level ESG Risk Rating score, but rather use aspects of the data to inform their models and investment approach.

Earth Overshoot Day and IPCC's "Code Red" for Humanity 

Two interesting and important sets of research are also highlighted. The first is Earth Overshoot Day, which fell on July 29 this year. This marks the date when the human population’s demand for ecological resources outstrips what the Earth can generate in that year. Unfortunately, the date continues to creep closer and closer to the start of the year.

The second is the Intergovernmental Panel on Climate Change’s (IPCC) sixth assessment report. Climate Change 2021: The Physical Science Basis analyzes global climate science research and warns that some of the key effects of climate change, such as rising sea levels, may be irreversible for thousands of years. This work on the current state of the global climate system and the effects of climate change will make for a sobering read ahead of the COP26 conference in Glasgow at the end of October. 

 

Key Moments

00:00:09 Introduction
00:01:18 Market overview
00:03:11 EMIA's enhanced principles for labeled bonds
00:03:58 IOC climate framework
00:05:23 Earth Overshoot Day
00:06:07 Blockchain and green finance
00:06:42 ESG score's place in credit ratings
00:07:49 IPCC climate report
00:09:25 Carbon offsets vs targets
00:11:06 Green bonds overview
00:16:21 Social and sustainability bonds overview
00:18:12 Green loans overview
00:19:49 SLB overview
00:23:23 Audience questions
00:27:27 SLL overview
00:31:29 Labelled products
00:32:33 Transition bonds overview
00:33:28 Regulatory developments

 

Links to Select Resources

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What’s Happening in Sustainable Finance: Key EU Developments and the Untapped Market of Climate-Aligned Bonds

Tuesday Sep 14, 2021

Tuesday Sep 14, 2021

Episode Summary

Hosts:

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Aditi Bhatia, Regional Sales Manager, Corporate Solutions

 

In this episode, Aditi and Nick highlight sustainable finance market developments that happened over the summer. From growing adoption of sustainability-linked debt in the Asia-Pacific region, to the recently published Social Loan Principles, to the continued flurry of sovereign activity in the market, there is a lot to cover. Suggested reading from this episode includes the Energy Transition Commission’s report Bioresources within a Net-Zeto Emissions Economy: Making a Sustainable Approach Possible to learn more about key environmental considerations around biomass as a fuel source.  

The EU’s Sustainable Finance Train Keeps Rolling

The European Commission released its renewed sustainable finance strategy, an update to its 10-point action plan from 2018. The strategy covers several initiatives to address climate change and environmental challenges, while increasing investments. It sets out of actions, including broadening sustainable finance to include transition finance and developing international sustainable finance initiatives and standards, among others.

The European Commission also launched its voluntary European Green Bond Standard for corporations and sovereigns. The standard requires proceeds be used for investments that are 100 percent aligned with the EU’s taxonomy and that issuers undergo audits to ensure funds are allocated to the right projects. The European Commission also adopted the Delegated Act supplementing Article 8 of the Taxonomy Regulation. The Delegated Act specifies how large financial and non-financial companies should disclose on the share of their business, investments or lending activities aligned with the EU taxonomy. For full details, please visit the European Commission website.

Climate Aligned Bond Market Much Larger Than We Think

The Climate Bonds Initiative (CBI) published a few interesting reports over the summer including Climate Investment Opportunities: Climate-Aligned Bonds & Issuers 2020. The report presents research on unlabeled climate-aligned bonds (i.e., bonds not explicitly labeled as green by the issuer, but that finance climate-related activities or projects). CBI found 420 climate-aligned issuers from 45 countries with US$913.2 billion in climate-aligned bonds, highlighting sizable investment opportunities.

Key Moments

0:00:54

Market news

0:01:10

Market numbers

0:02:29

Continued uptake of social bonds

0:03:19

Updated EU sustainable finance strategy

0:03:46

EU Green Bond Standard

0:05:02

EU Green Deal

0:05:53

Bioresources report from the Energy Transition Commission

0:07:05

EU Green Bond Framework

0:07:52

Market expresses greenwashing concerns

0:08:15

Sukuk transactions and sustainable finance

0:08:26

Debate around nuclear continues

0:08:51

Concept of double materiality

0:09:30

Climate Bond Initiative resources

0:10:28

Green bonds overview

0:15:27

Social bonds and loans overview

0:17:52

Green loans overview

0:19:02

SLB overview

0:23:43

Audience questions

0:26:19

SLL overview

0:28:58

Labeled products overview

0:30:45

Transition bonds overview

 

Links to Select Resources:

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What’s Happening in Sustainable Finance: The Push for Climate-Related Disclosures, Assessing SPT Ambitiousness, and More

Sunday Aug 22, 2021

Sunday Aug 22, 2021

Episode Summary

Hosts:

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Marika Stocker, Senior Manager, Corporate Solutions

In this episode, Nick and Marika share updates on the latest deals and transactions in the global green, social, sustainability and sustainability-linked (GSSS) debt market. The market shows no signs of slowing down as the numbers for the first half of 2021 surpass all of 2020. Some forecast that the total value of the global GSSS market for 2021 may reach US$1 trillion.

Nick also shares highlights from ICMA’s annual meeting and discusses the growing number of oil & gas companies delving into sustainable finance. Marika gives an overview of recent green bond activities. Responses to audience questions focus on the hot topic of sustainability-linked bonds.

A Push for More Climate-Related Reporting and Disclosure

Leaders at the G7 summit were urged to follow the UK’s lead and make it mandatory for companies to report on their exposure to climate risks as part of a broader effort to decarbonize global investment portfolios. Currently, investors lack information on the climate-related risk linked to the companies they invest in. The Value Reporting Foundation has also come out with more guidance around corporate reporting. The International Financial Reporting Standards (IFRS) is also working on standards around sustainability reporting.

More Oil & Gas Companies Wade into Sustainable Finance

As the global sustainable finance market continues to mature and evolve, companies from hard-to-abate sectors are testing the waters. With more oil & gas companies dipping their toes into the sustainable finance pool, we note a few important things for them to consider when looking at sustainability-linked debt:

  1. The extent to which scope 3 is included (or not) in the company’s sustainability strategy and framework. This is of particular importance for companies operating in hard-to-abate sectors.
  2. The extent to which offsets are included (or not) in the company strategy. In our view, they should be a minor part.
  3. The extent of ongoing exploration and capital expenditures for the existing oil & gas businesses. If it’s significant with no indication of change, then it really doesn’t align with sustainability goals and targets.

Assessing the Ambitiousness of Sustainability-Linked Instruments

In response to an audience question, Nick outlines Sustainalytics’ approach to assessing the ambitiousness of KPI and targets for sustainability-linked instruments. Companies should be evaluating against their past performance, against the performance of their peers and against science-based benchmarks. There are several resources in the market to help companies judge the ambition of their indicators/targets such as the Science-Based Target Initiative, Transition Pathway Initiative, ICMA’s Green Bond Principles and Social Bond Principles, among others.

Key Moments

00:52

Market news

02:18

ICMA resources

03:46

Nasdaq Green Designation

04:59

Push for more climate disclosures

05:10

Value Reporting Foundation guidance

05:32

Market talk about SLBs

06:25

Sustainability-linked debt in eight metrics

07:24

More oil & gas companies in sustainable finance

08:32

Biodiversity report

09:00

CBI resources

09:42

Green bonds overview

15:04

Social bonds overview

16:24

Green loans overview

17:48

Audience questions

24:41

SLB overview

26:45

SLL overview

29:58

Labelled products

 

Links to Select Resources:

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What’s Happening in Sustainable Finance: Adopting the Climate Transition Finance Handbook, Recovery Through Sustainable Sovereign Debt and More

Thursday Jul 22, 2021

Thursday Jul 22, 2021

Episode Summary

Hosts

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Aditi Bhatia, Regional Sales Manager, Corporate Solutions

 

In this episode, Nick and Aditi cover some of the recent developments in sustainable finance with market diversification being the common thread. Market volumes continue to increase showing positive year-over-year momentum. Contributing to that growth is new market entries from various sectors as well as a broader scope of activities and projects being funded. With this diversity comes greater scrutiny of the market, especially of issuers and borrowers, their projects and frameworks, as well as their lenders. In our opinion, such scrutiny and debate will ultimately lead to more robust and credible sustainable finance activities.  

Climate Transition’s Influence on Sustainable Finance 

Although not expressly transition, some sustainable financing frameworks and issuances are coming to market in alignment with ICMA’s Climate Transition Finance Handbook. Japan’s Financial Services Agency has also released its Basic guidelines on climate transition finance with the aim of encouraging the allocation of more funds to contribute to the country’s carbon neutrality goals. In response to a listener question, Nick notes the Handbook’s use in the sustainability-linked bond and loan frameworks of companies in hard-to-abate sectors.  

More Sovereigns Move Forward on Sustainable Debt

Sovereigns continue to issue sustainable bonds to support their economic recoveries. Issuances from Germany, the UK and Pakistan made headlines, as did announcements from Canada and Kenya. The principality of Andorra even got in on the action, issuing its first sustainability bond and raising EUR 500 million to finance biodiversity conservation, sustainable water management, employment generation and access to essential services, among other green and social projects.

Diversification's Positive Impact on the Market

Diversification within the global sustainable debt market continues and we see that as a good thing. The entry of market participants from various sectors and the financing of innovative green and social projects has led to greater debate and scrutiny of the market. Highlighted this month are transactions from companies in real estate, semiconductors, agriculture, rail, household goods, banks, technology, education and the mainstay, renewables. This diversification of sectors and types of projects financed is important for the continued evolution and improvement of the sustainable finance market. 

Key Moments

00:08

Introduction

00:46

Market news

01:14

Market volumes up

01:53

Shell landmark court verdict

02:42

Exxon shareholder activism

02:59

IEA “Net Zero by 2050” report

04:36

ICMA additional recommendations for building taxonomies

05:03

ICMA additional guidance for climate transition finance

05:49

Transition bonds in danger?

06:39

Challenges to SLBs

07:28

Update to Sustainability-Linked Loan Principles

08:24

Sustainable Trade Finance

09:12

Oil and gas and sustainability-linked frameworks

10:21

New Climate Bonds Initiative reports

10:44

Hong Kong Monetary Authority guidelines on sustainable finance subsidy program

11:26

Transactions overview

14:53

Social bonds overview

15:49

Green loans and bonds overview

16:24

Sustainability-linked bonds overview

19:42

Listener question

22:11

Sustainability-linked loans overview

24:19

Transition bonds overview

25:21

Labeled products overview

26:08

Regulatory update

 

Links to Select Resources

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Sustainable Finance Insights on Transition Finance, Sustainability-Linked Bonds, Sovereign Bonds and More

Wednesday Jun 23, 2021

Wednesday Jun 23, 2021

Episode Summary

Hosts

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Marika Stocker, Senior Manager, Corporate Solutions

In this episode , Nick and Marika discuss the bustling labeled bond market and its ongoing diversification in terms of the types of issuers, geographies, the use of proceeds and products. As the year rolls on, the sustainable finance market continues to produce strong volumes in terms of the number of transactions and their value. They also highlight developments around transition finance guidance as well as new and updated principles in the loan market. As always, they take a couple listener questions, this time focused on how bonds are labeled and the emergence of combined instruments.

Sovereign activity in the bonds space

Activity in the labeled sovereign bond market looks to be heating up for 2021. Several nations including Russia, Canada, Hungary, UK are considering issuing sustainable sovereign bonds. We’ll keep an eye on this space to see which countries come to market with green, social or sustainability sovereign bonds.

Transition finance

More is being written about transition finance and whether sustainability-linked bonds (SLBs) have taken their place in the market. No doubt SLBs have come on strong, but we see diversification, especially with respect to product, as important for overall market health. Nick notes some of the challenges that could account for the low number of labeled transition finance thus far but anticipates that in time we will see more transition bond issuances. Nick also highlights two transition-focused reports worth checking out - The Transition Pathways Initiative’s annual "State of Transition" and Natixis’ "Transition Tightrope" series.

Continuing momentum of SLBs

On the SLB front, the segment continues to grow. Transactions beget more transactions as borrowers and lenders gain confidence in the instrument. While some observers have doubted a handful of issuances due to questions around the materiality, relevance and ambitiousness of their sustainability performance targets and KPIs, the scrutiny is ultimately good and will raise the caliber of SLBs coming to market.

Key moments

00:09

Introduction

00:55

Market news

02:20

TPI “State of Transition” report

03:05

Ongoing developments in China

03:55

Transition bonds vs SLB?

05:07

Natixis “Transition Tight Rope” report series

05:40

EU Taxonomy developments

06:31

Social Loan Principles released

07:07

ELFA/LMA - ESG considerations in leveraged loan paper

08:11

Bond issuance overview

13:21

Loan transactions overview

14:18

Sustainability-linked bonds overview

18:54

Questions

22:31

Sustainability-linked loan overview

27:04

Transition bond overview

29:01

Regulatory updates

 

Links to select resources

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Sustainable Finance Insights -- Climate Adaptation, Biodiversity, Natural Capital, and More

Tuesday Jun 08, 2021

Tuesday Jun 08, 2021

Episode Summary

In this round up of news, transactions, and regulatory updates in the global sustainable finance market, Nick and Cheryl discuss climate adaptation and the importance of biodiversity and natural capital. They also share some useful updates and resources from the Climate Bonds Initiative (CBI). CBI recently launched criteria for hydropower, providing guidance for developers on ensuring climate change resilience. It also published several new reports covering the state of green finance in Japan, infrastructure in Malaysia, and the pricing dynamics of green bonds. Finally, CBI shared a helpful list of stock exchanges with dedicated green bond or sustainable bond segments.

IFRS Sustainability Standards Board

On the topic of the growing call for global sustainability standards and the integration of sustainability into financial reporting, Nick and Cheryl discuss the International Finance Reporting Standards (IFRS) Foundation’s proposal for a sustainability standards board that would sit alongside the International Accounting Standards Board and build on the work of other standard setters focused on sustainability reporting.

Development in US Sustainability

In the U.S., the Biden administration announced commitments to cut emission by 50% compared to 2005 levels. Nick anticipates that the U.S. Securities and Exchange Commission’s increasing focus on environmental, social and governance (ESG) and climate issues in finance will ultimately have positive ramifications for the broader sustainable finance market.

Combination Instruments

Touching on a prediction made about what we might see in the market this year (listen to our 2021 Outlook episode), Nick touches on the emerging trend of combination instruments. Both Takamatsu Construction Group in Japan and Verbund in Austria issued sustainability-linked green bonds which combine the best of both worlds. Though many investors and issuers still show a preference for either use of proceed bonds (more transparent and explicit allocation of funds) or linked instrument (allowing more flexibility), the idea of a combined approach is being floated in the market.

Nick and Cheryl wrap things up by answering a couple of listener questions and offering up a fun fact about bees and why it’s imperative that we protect these pollinators.

Hosts:

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Cheryl Tay, Senior Associate, Corporate Solutions

Key Moments:

00:00:09

Introduction

00:01:39

Market news

00:01:39

Climate adaptation article

00:03:07

CBI Hydropower criteria

00:04:08

Additional CBI reports

  • Japan state of the market
  • Malaysia infrastructure opportunities
  • semi-annual green bond pricing dynamics report
  • sustainable stock exchanges

00:05:59

IFRS reporting standard proposal

00:07:55

Biodiversity / natural capital initiatives

00:09:25

US administration new emission targets

00:10:09

SLB continuing trend

00:11:38

Hybrid instruments - linked and labelled

00:12.58

Green elements of insurance

00:14:04

Bond issuance overview

00:19:49

Green loans and social bonds overview

00:22:04

Sustainability-linked bond overview

00:24:56

Sustainability-linked loan overview

00:26.55

Transition bond overview

00:28:58

Sustainable product developments

00:30:08

Listener questions

00:32:13

Fun fact - why we need to protect bees

 

Links to Select Resources:

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Sustainable Finance Insights - Discussing ESG Insights in Supply Chains

Wednesday May 26, 2021

Wednesday May 26, 2021

In this special episode of the Sustainalytics Podcast, our host Nick Gandolfo is joined by Nicole Verkindt, Director, Sustainalytics Corporate Solutions to discuss the role of ESG in supply chains. Given the large proportion companies spend in their supply chain (about 70% on average), the environmental, social and governance (ESG) and sustainability performance of supply chain companies can not be ignored. And for suppliers, a focus on improving their own ESG performance could be a competitive advantage.

Nicole and Nick also discuss the launch of Sustainalytics’ ESG Assessment Platform, a tool to help companies assess the overall sustainability of the organizations that they work with, from customers to suppliers to partners.

Visit our website to learn more about the ESG Assessment Platform.

Host:

Nicholas Gandolfo, Director, Corporate Solutions (Commercials), APAC

Guest:

Nicole Verkindt, Director, Corporate Solutions

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Sustainable Finance Insights - February 2021 Highlights

Wednesday Apr 07, 2021

Wednesday Apr 07, 2021

In this episode, Nick and Cheryl shares insights on recent market developments and trends such as questions around the ambitiousness of some SLB targets, implications of SFDR on investor and company reporting as well as some interesting green, social, sustainability and sustainability-linked transactions.
 

Hosts:

  • Nick Gandolfo, Director, Sustainable Finance Solutions
  • Cheryl Tay, Senior Associate, Sustainable Finance Solutions

Resources mentioned in this episode:

Sustainalytics SPOs:

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Sustainable Finance Insights - January 2021 Highlights

Wednesday Mar 10, 2021

Wednesday Mar 10, 2021

In this episode, Nick and Cheryl discuss some of the key sustainable finance deals and transactions from the beginning of the year. Environmental Finance released its annual Sustainable Bonds Insights report, which highlights a record year for green, social, sustainability and sustainability-linked bonds with more than 602 billion in issuance in 2020. Also of note in the report is that Sustainalytics continues to be a market leader with more than 30% of market share among opinion providers (based on number of issuers).
 

Hosts:

  • Nick Gandolfo, Director, Sustainable Finance Solutions
  • Cheryl Tay, Senior Associate, Sustainable Finance Solutions

Resources mentioned in this episode:

Sustainalytics SPOs:

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Sustainable Finance Insights | Special Episode – 2021 Outlook

Thursday Feb 25, 2021

Thursday Feb 25, 2021

In this special episode, Nick and Cheryl gaze into their crystal ball and discuss want could be on the horizon in the world of sustainable finance for 2021. They also take a deeper dive into Sustainalytics’ recently published thematic research report “10 for 2021: Investing in a circular food economy” and how the themes covered in the report connect to areas of focus in sustainable finance.
 
 

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